Selling A Property And Paying Capital Gains Tax

By : Nick Marr

So what is capital gains tax ??? CGT is a tax which you have to pay on any profit you make on a property which isn’t your primary residence.

You are entitled to an annual allowance of £11,300 per individual but if you exceed this amount you will need to pay tax on the overage. So, in theory, your property can increase by £11,300 before you pay any tax. That’s as long as you don’t earn from anywhere else.

People ask whether they pay capital gains on a second home?? It’s down to the HMRC if they deem it that it’s not your primary residence then you will have to pay GCT.

This will also apply to any buy to let property you might own, if it has risen in value by more than the allowance then you will have to pay GCT.

Tax On Inherited Property

If the property is left to your wife/husband or partner, or a charity there won’t be any capital gains to pay.

Once you inherit the property and the estate has paid any inheritance tax then there won’t be any CGT to pay. If you decide to sell the property your CGT will be calculated from the point you took ownership and the value at that point to when you sell the property.

If you decide to sell a house that was lived in by a dependent relative then you might not have to pay any CGT.

How do I calculate my capital gains tax bill?

To work out how much Tax to pay, you will need to do a little bit of working out.

If you’re are lucky enough to be paying a high rate of tax, it quite easy. You simply just subtract you CGT allowance from your gain and the amount owed will be 28% of the balance.

If you pay a basic rate of tax then this can a little bit trickier. You simply work out the gain-minus-allowance which will lift your income into the higher rate band. So everything over the higher rate band will be taxed at 28% and anything below will be charged at 20%. It’s probably best to get your tax adviser to work out the amount owed just to make sure you get the right amount.

When will I have to pay my CGT Bill?

When you have a capital gain in a particular tax year you will have to submit a tax return to HMRC. You will then receive a bill from the HMRC to pay your outstanding CGT, which you will need to pay before the end of the tax year. The gain is usually dated from the moment the property exchanges contracts, so beware that if the exchange and completion might fall on two different tax years.

Can I reduce my capital gains tax bill?

Yes, there are a few ways you can reduce the amount of capital gains tax you need to pay.

Spouse Allowance

Don’t forget that everyone has a CGT allowance, if you own the property solely, you can double your allowance by putting your spouse on the title deeds.

Different CGT bands

As you can see basic rate taxpayers pay less CGT, if you are a high rated taxpayer and your partner isn’t you can reduce your CGT by transferring all or part of the property to them. Speak to your accountant about the best way to do this, you might as well use both of your allowances.

Time your sale

Always check with HMRC whether they are increasing the CGT allowance or decreasing the allowance for the next tax year which can occur. Also if you have used up your CGT allowance for that particular year delay your sale so it falls in the next tax year.

Register the property as your primary residence

If you own a few houses and wish to sell an old buy to let. You might be able to register the property as your primary residence to eliminate any CGT. HMRC are very strict on this so check with your financial advisor before doing so.